State Bar of South Dakota

Ethics Opinion 98-3

April 28, 1998

Rule: 1.15

Subject: Trust account disbursements; Attorney's liens

Summary: Where third party has lien on settlement received on behalf of client,
attorney must determine if there is "dispute" as to third party's interest in
the proceeds before releasing funds to third party.

FACTS

You represented a plaintiff in a personal injury action. Your client moved out of South
Dakota. In another state, your client authorized a lien on the proceeds of her South
Dakota claim in favor of other attorneys representing family members in unrelated legal
matters. (Hereinafter "foreign attorneys"). The lien was served upon you and you
were satisfied it was a valid lien.

You settled the South Dakota personal injury action. You sent a trust account check to
the foreign attorneys, made payable jointly to your client and the foreign attorneys. You
copied your client on the transmittal letter forwarding the check.

The foreign attorneys are unable to locate your client for endorsement of your trust
account check. The foreign attorneys now request that you stop payment on the check and
send them a new one payable only to the foreign attorneys.

You asked the Committee whether you may honor the request from the foreign attorneys
under these circumstances.

OPINION

SDCL 16-18 Appx. Rule 1.15, in pertinent part, provides:

(b) Upon receiving funds or other property in which a client or third person has an
interest, a lawyer shall promptly notify the client or third person. Except as stated in
this Rule or otherwise permitted by law, or by agreement with the client, a lawyer shall
promptly deliver to the client or third person any funds or property that the client or
third person is entitled to receive and, upon request by the client or third person, shall
promptly render a full accounting regarding such property.

(c) When in the course of representation, a lawyer is possession of property in which
both the lawyer and another person claim interest, the property shall be kept separate by
the lawyer until there is an accounting and severance of their interests. If a dispute
arises concerning their respective interests, the portion in dispute shall be kept
separate by the lawyer until the dispute is resolved.

A comment to Rule 1.15 states:

Third parties, such as a client's creditors, may have just claims against funds or
other property in a lawyer's custody. A lawyer may have a duty under applicable law to
protect such third-party claims against wrongful interference by the client, and
accordingly may refuse to surrender the property to the client. However, a lawyer should
not unilaterally assume to arbitrate a dispute between the client and third party.

Your request appears to turn on whether there is a "dispute" concerning the
foreign attorney's interest in the proceeds. Rule 1.15(c). If your client authorized the
lien, this suggests that there is no "dispute." However, the validity of the
lien is only one source of potential "dispute" and insufficient facts are
presented to determine whether other possible sources of "dispute" between your
client and the foreign attorneys exist. In addition, the sources of potential
"dispute" are matters of substantive law upon which this Committee may not
opine. See, Ethics Committee Guidelines.

It is the opinion of the Committee that if you are satisfied by your communication with
your client that no "dispute" exists, you are permitted to stop payment on the
original check and issue one made payable to the foreign attorneys. On the other hand, if
you are not satisfied that no "dispute" exists between your client and the
foreign attorneys, you must retain possession of the proceeds until your client and the
foreign attorneys resolve the "dispute." Rule 1.15(c). For an example of the
hazards inherent in unilaterally erroneously resolving a "dispute," see, e.g.
Leon v. Martinez, 638 NE2d 511 (NY 1994).